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words," with guest host, author nomi prins. this week "this american life" contributor jake halpern and his latest book, "bad paper." it tells the story of a former bank executive and a former bank robber going into business together to collect unpaid bank debts by often questionable means. the program is about an hour. >> host: hi and welcome. i'm nomi prins here today with jake halpern, the author of the fascinating and horrifying new book, "bad paper: chasing debt from wall street to the underworld." jake, welcome. >> guest: thanks for having me. >> host: thank you. this book is incredible, and so is your story. and i think the two really mirror each other. this takes place in buffalo, new york, a lot of it. and you're from there, aren't you? >> guest: yeah, that's right. i grew up there.

my tad and his wife -- my dad and his wife still live there, and it's how i find my way into this world. >> host: you talk about a particular and many unsavory characters that are scrabbling to make their own peace with the world and often have prison records and have been drug dealers and so forth. there's a fellow named jimmy that comes out here that seems to be one of the main characters of this nonfiction store. >> guest: right. >> host: can you talk to me a little bit about how you connected with him? >> guest: yeah. the way this got started was i was talking to my mom a few years back, and she told me she was being hounded by a debt collector. she said i don't owe the money he's saying i owe, but i think i'm going to pay him so he'll stop harassing me. my mom is no witting lily, so i thought this is bizarre. i started googling it and saw there was a lot of this going on, and actually the epicenter of debt collections in general in the united states was

buffalo, or it was one of the big hubs. so i had it in my head i was going to do a story actually from the collector's perspective, what's it like to collect debt, what's your life like. so i pitched the story ott new yorker just kind of bare bones. what do you think about this, i'm from buffalo, my editor said, great, 5,000 words, when can you get me copy? i kind of panicked, was i had nothing -- because i had nothing. i went to buffalo once, no one could talk to me. i went a second time, and i still had nothing. i started to panic because i had nothing for the story, so i went on facebook and sent messages to everyone i went to high school with, everyone my brother went to high school with, and i got one message back from this guy, actually jimmy's brother, and i got jimmy on the phone and he said to me, basically, you better get down here quick because my business is struggling, i don't know how

many longer i'll be -- how much longer i'll be open. but if you can show folks how hard my day-to-day life is, i'll will satisfied. i showed up, jimmy was immediately one of these incredible characters that was eloquent, i'm driving around in his car with him, going to church with him, meeting his family, and that becomes my entry point into this world. >> host: he had a struggle. you got to him through a set of correspondences through facebook and so forth. >> guest: right. >> host: tell me about your history in buffalo and just the atmosphere, how it's changed from what you knew growing up in your childhood to the kind of place where it's one of the capitals, right, of debt collection in the united states. how did that finish. >> guest: yeah. buffalo was once this big industrial powerhouse, it had all this industry, and starting in the late '70s, early '80s, that all starts to fall

apart, and unemployment goes through the roof. in place of these old industrial jobs, collections kind of fills that void. someone it would me buffalo so good at collections because even though the country has been in a great recession since 2008, buff buffalo's been in it since 1979, and people can connect with people who are having hard times. when i was a teenager even, this was kind of starting to take form. but i don't think i really knew about it. and even though i went to high school with jimmy and it was supposed to be an integrated high school, we came from opposite sides of main street, and i didn't have any sense of really what life was like on the east side of buffalo or what jimmy was going through. even though we could talk about having the same english teacher, it was like we were from a totally different world, and it wasn't until i started reporting the story i learned in high school his father was a heroin addict, he had had become a

cocaine dealer, had gone to jail on a gun possession, and our lyes couldn't have -- lives couldn't have been more key-- divergent. >> host: he has something you call the package -- >> guest: right. >> host: -- which seems to be the crux of what you're chasing and what the debt collectors are effectively chasing and involved in in the book. can you kind of talk about what his relationship -- what the package is and how this opened up the rest of this amazing story to you. >> guest: right. so the package is this one piece of debt that i follow through the debt, and it's, i think, helpful to understand when i talk about debt that's being bought and sold here, we're really just talking about an excel spread sheet. you have the banks or big creditors, and they try for six months to collect on a debt that's been paid, and when they can't, they'll typically sell it off for pennies on the dollar to debt buyers, and then those debt

buyers will collect as much as they can, and then sell it to the next and the next and 2 next -- >> host: what kind of information? >> guest: yeah. so you look at the spread sheet, it'll be debtor's name, social security number, address, balance, date the account was opened, maybe one or two other fields, but that ice basically -- that's basically about it. they're bought and sold on e-mail, and that is the paper, but that's really all that it is. as you can imagine, it doesn't take much for something to go wrong, for some of the fields to get mixed up, the amounts, the debtors' names to get confused or for someone to sell the same excel spread sheet to multiple, unsuspecting buyers who are all collecting on it at once. so in my book i follow the package, this one piece of debt, that's about $48 million in its face value but is bought for pennies on the dollar by this debt buyer in buffalo, aaron

siegel. this piece of debt gets stolen. somehow aaron finds out from his collectors. aaron, something weird is going on with these accounts, it appears that somebody else has access to this information and is collecting the money from the dealters on this package before we -- the debtors on this package before we get to them. so at that point he called his fixer who's a guy named brandon wilson who's kind of his unofficial partner who's a former bank robber who's gotten into this business, helps him buy and sell debt, but also helps him solve these sorts of problems. and it's brandon who goes and tracks down the thieves that have gotten ahold of this debt and retrieves it. and we can talk about -- it's a crazy showdown with guns, and they get it back. but the world he must go to to retrieve that debt, that's the world that jimmy inhabits which is this kind of gray area of legality, kind of underworld of buying and selling debts in a

sketchy manner that exists in buffalo and other places. >> host: right. and this underworld has that hierarchy you mentioned, and you have former thugs to a large extent at the bottom level getting some of this paper that is perhaps sold and resold. you also have to talk about how paper's been stolen -- >> guest: yep. >> host: -- as well, and then you have the level up through aaron siegel. he seems like an interesting character. talk about how you got to him through jimmy and also he wasn't a thug. he grew up on the good side of buffalo. >> guest: that's right. >> host: he had a wealthy family upbringing, lived in a mansion. >> guest: right. >> host: so how did he come into the same business? >> guest: right. so the story really -- the way i tell the story in the book, it starts with this guy, aaron siegel, and aaron grew up in a wealthy and well known and well respected family in buffalo. he goes to wall street for a while as a banker, he even does some time in london and decides

he wants to come home to be closer to his family. and he ends up working at an office of bank of america in buffalo. but around the time he comes back, what's happening is throughout buffalo entrepreneurs are buying some debt, or they're buying this paper, these spread sheets, and opening up a shop where they hire collectors to collect on it. this is right before the kind of yeah great recession happens. his profit margins initially are through the roof. he's buying up portfolio debt for 30 grand and in three months making 90 grand. so he realizes he's found this amazing niche of the finance world, and the key to much of his success is he's got this supplier who's supplying him with this paper at a really great price, and it's really lucrative. the supply or is brandon wilson, this form ther averaged robber who's -- armed robber who's done ten years in prison who's got this kind of genius for finding

paper that's very collectible and isn't that expensive to buy. so even though aaron kind of comes from this more rarefied world and has got this kind of banking past, he understands that in this sector of the economy it's not unusual to have some kind of shadier connections or some guys that are rough around the edges. so he and brandon form this unlikely friendship and partnership, and that's really the starting point for the book and for the story. >> host: you talk about how when they're looking for this paper, aaron's looking for it through brandon, he actually also buys a portfolio from his old firm, from bank of america. >> guest: yeah. >> host: that you talk about as being not so great a portfolio, but for reasons other than the fact it's been stolen and moved around the block many times. >> guest: right. the irony is aaron is always -- the key to making a profit margin in this world is getting good paper. everyone's hunting for good paper. and when he buys from his former employer, bank of america, you would think this would be as

kind of respectable and dependable as it could be, he feels that bank of america really pulls a fast one on him because he spends all this money, millions of dollars, buying this piece of debt from bank of america, and it turns out they're almost all senior citizens which have the smallest amount of disposable income, and he feels that bank of america failed him, but the former armed robber, brandon, that he does business, kind of comes through for him in a way that his former employer doesn't. >> host: what does he do? >> guest: he's really behind the 8 ball when he buys this paper and it's all these senior citizens. he feels he can't, he's not going to be able to turn a profit because he's invested all this money in them. he goes back to brandon, and brandon's specialty is finding what he calls "crap." and crap and brandon's definition of it is old debt that everyone thinks is worthless because it's been around the block a few times, it's been bought and sold a

bunch, it's 10-15 years old, but it still pays because maybe it was sitting in a call center in brazil for phi years or maybe -- for five years. so brandon would find these little deals on this paper. after aaron buys this stuff from bank of america that really puts him behind the 8 ball, he turns to babs done and says, brandon, you've got to help me find these deals on this crap and this other stuff that you find. and then the package, which we talked about before which is this piece of debt that gets stolen, the package is fantastic paper for aaron. it's really good. it's paying off for him and then, of course, it gets stolen, and he's like, all right, brandon, go fix this. >> host: right. and how did aaron even come up with the money to buy the package? he did okay, he had a banking job, he went back to buffalo. who's behind sort of funding the initial purchases of these packages at the aaron level?

>> guest: aaron's story, he's a banker in new york, comes back to because of low and -- buffalo, and sets up his own small collection agency. with brandon's help, he's getting paper that pays huge dividends. he starts thinking, wow, what if i did this on a much larger scale? he makes a few phone calls and finds eight investors who give him $14 million to do a trial run. the thinking is if he can do with this $14 million what he's done with his own money, these 300% returns and what not, then he'll do it even bigger for this 14 million. then he'll do a second round with 40 million and bigger and bigger. the problem is that there's several problems, one of which the great recession occurs, and people don't have as much money, and he encounters many problems along the way including the theft of some of this paper which, you know, i chronicle in the book. >> host: so basically before that -- while that's happening, he's in a hole. >> guest: yeah. >> host: he's out some amount of

that $14 million. he's got investor on the other side squeezing him for -- they want their money back. >> guest: yeah. >> host: you visited a coup coup of l of these investors, what was their stake in this, and how much were they pressuring him, and how much was it a portion of their own money? how much did they even care about what happened really? >> guest: i think it's funny because i did want to meet some of aaron's investors and get a sense for what their take on this was, and i went out to dinner one night with one of them. this strange sequence of events. the debtors are owing brandon who's collecting on it, brandon's getting the money he owes aaron who's organizing the fund, aaron then owes the investors who gave him the money. everyone is connected by this thing of debt. when aaron goes to one of his investors, a fellow named joseph, he's totally anxious. and it turns out joseph sees this almost as he's just popped

him a million dollars to see -- he's also put money into tanning salons and bars and for him aaron said he was hoping it would pay off, but it's almost like an amusement. and when we're having dinner with joseph, i say do you ever think about, basically, the people whose debts you're buying? and he says, no, why should i? they are, they've made, you know, bad financial choices. is it my fault for wanting to profit on it? he makes the analogy to a baseball game. if a pitcher pitches a bad pitch and the batter knocks a triple, you know, is the batter somehow wrong for taking advantage of the bad pitch? and that was joseph's feeling about the whole situation. but it was kind of crazy to think, you know, i met some of the debtors, and they're a poor single woman the living in st. louis, former armed robber from boston, buffalo scioning, and

all of their lives were connected by this chain of debt, but none of them really know one another. that whole aspect fascinated me. >> host: the way you write about it so clear. it's like we're there in your writing. you're an excellent writer, and you really are an on-the-ground journalist, and that helps to bring alive these characters and also the locations in which you're meeting some of these people, and you have met the top of the chain, the josephs, down to the bottom of the chain, the individuals that get really hurt and rolled over in this process. >> guest: yeah. >> host: you actually talk about some specific individuals or that are just numbers -- >> guest: right. >> host: -- in this package, just represented as numbers. >> guest: that's right. >> host: they have real lives, but you spoke with some of them. you mentioned a woman named teresa, a woman named joanna who were taking out credit and paying it, and then things happened. what was that? >> guest: right. you're absolutely right. so what's being bought and sold

here, it's easy to think of it like some sort of commodity because you're just looking at these string of numbers on these sheets, and there's thousands of them, and this one paid and this one didn't pay. you think of this package of several thousand lines op this excel spread sheet are basically several thousand stories of people whose lives for one reason or another have fallen into financial ruin. so i mangled to get ahold of this spread sheet, and i was looking at it and thinking to myself, these are stories here. these names and these numbers represent something that's happened. so i started kind of reaching out to some of these people and explaining i'm a journalist, i'm looking into this particular piece of debt that i believe was stolen, and i want to hear your stories. most people just hung p on me -- hung up on me, but a few that i profile in the book talked. and what they said, teresa, the woman you mentioned, she was a former marine. she defies whatever stereotypes

we have of a debtor. she had worked through high school helping her parents pay off their mortgage. her life comes apart after she gets out of the marine corps. she finds out her husband is cheating on her, she kicks him out of the house. she's still on the hook for the vehicle payments and the mortgage, and she falls behind in her bills. and at that point she stops -- the fees start kicking in on this washington mutual card which is the card that was connected to the package. late fees and over-the-limit fees, and eventually she just can't pay anymore. so unbeknownst to her, washington mutual sells off this debt to a debt buyer, and it ends up in aaron siegel's hands in buffalo, and then it ends up being stolen and in the hands of these guys who don't actually own it. so one day teresa, of course, doesn't know about this. so one day she gets a call and says, ma'am, you owe this money, and you immediate to pay this right now -- you need to pay this right now, or there's going

to be legal repercussions, and the calls get increasingly threatening. meanwhile, teresa's got a job working at border patrol, and if she doesn't have her credit in order, it's hard to have a job like that because you can be blackmailed. teresa's thinking, oh, i'm going to lose this job, what am i going to do? i'm just going to pay these guys off. she agrees to pay $2700 off in several install lts. she feels good about it, but when she makes the last payment and she's expecting to get a receipt for what she paid, there's nothing. and when she checks with the credit reporting agencies, there's no record of her paying. she assumed she was paying people, why would you assume otherwise? they had all her information. but she's paid people who stole her debt. and these are some of the people that aaron and brandon realize are paying the wrong guy. so you're absolutely right, each one of these names on this package of debt that gets stolen are real people, and the stakes

couldn't be much higher for what this means for their lives. >> host: and it seems like there's so few rules or abilities for regulators to really cover all of these different points you talk about, these individuals, debt moving back and forth when it does. >> guest: yep. >> host: and people like teresa don't, they don't know what's going on. they're just afraid, they're just paying because of the phone call. what kind of tactics are coming from that other side of the phone call? almost a third of americans have debt right now are in collection? >> guest: that's right. >> host: so they may be getting these phone calls from some of these people that you talk about in your book. what is that like? what's their -- >> guest: you're absolutely right, about a third of americans have a debt in collection, and when you're getting called by a debt collector, basically what you get is the talk off, and that's the collector on one end trying to persuade you to open your wallet and pay your bill. so there's legal talkoffs, there's illegal talkoffs, and there's kind of a gray area. so the legal talkoff would be just talking through this is the

information, this is your social security number, you need to pay this, how can we arrange this, you have to do this, the illegal tactics are basically when you're threatening and lying to consumers saying we're going to take legal action when that is not true, we're going to arrest you, we're going to seize your property. lies and coercions and threats like that are not legal, and that happens a fair amount. if you think about it, it happens towards the bottom of the debt food chain. if you have this bank selloff to a fairly reputable buyer, they don't need to do that to get the money quickly. but when that debt has been bought and sold six and seven times, what it's whittled down to are the folks who haven't paid any of the previous six owners, and the people who usually get that down are the people at the very bottom of the food chain, and that's where they almost feel they have to make these threatening calls in

order to kind of squeeze the money out of folks. and there's often these are these small agencies that open up, they do it, and then they close back down and open up somewhere else before they can be caught by the authorities. and i just want to say, make one other point which is that there's not a lot of regulation and law enforcement that exists. it's changing, it is -- the consumer financial protection bureau and the state attorney generals are starting to get more into this space, but within the last bunch of years, there hasn't been much regulation. and that helps explain why a banker like aaron would team up with a former armed robber like brandon. not only is brandon getting good paper, brandon's basically offering him a service that regulators and law enforcement can't which is when something goes wrong, i will solve this problem for you. because calling the police and calling the state attorney general and calling the cfpb is not going to get it done. you need me, brandon wilson, to straighten it out. and i think that aaron saw the truth in that.

>> host: you made the comparison just in that. you've got desperate people on one side who are trying at the bottom of their food chain to collect debts and desperate individuals who are getting these phone calls and are paying because it sounds scary. >> guest: yeah. >> host: and you have their little regular -- very little regulation particularly at the bottom part of this chain. so what recourse do some of these individuals have, or what can they do beside -- where do they complain, what can they do if they paid on a debt but it's gone to no one? i mean, it's gone to, basically, some of these people? >> guest: right. i mean, i was sitting in jimmy's shop one day in buffalo a few years ago, and i was listening to the calls between the collectors and the debtors, and the guy gets on the phone, and jimmy's trying to collect from them, and the guy says i just paid this payday loan off three months ago. i paid $900 -- by the way, that was probably a $300 loan. and jimmy said, well, can you

send me written proof with a receipt from that agency showing your proof? and the guy said i never got that. and then jimmy said to him mart of factually -- matter-of-factly, sir, you still owe him the money. and he turned to me and said this is the only way that i know that guy is telling the truth. like if i just forgave every debtor that said they had paid, but you got a sense of the franticness of the guy on the other side of the line who sounded earnest, and he didn't sound like he had much recourse. i think the calls will continue until you pay kind of thing. now, there are one or two things that are helpful for consumers to know. one of which is know what the statute of limitations in your state is for when a debt is no longer legally enforceable. and it varies from three to six years. but if you're getting a call on a debt that's four years old and the statute of limitations is three years old, then you have no legal obligation to repay that debt. and another thing is after seven

years, most negative reporting falls off your credit report, the credit reporting agencies. >> so is it safe to say that's very interesting information, i think, for anyone out there getting these calls, is it safe to say if you do get a call after five or six years about a debt back then, is it safe to say you should, i mean, ignore that call? >> guest: yeah. you may feel you have a moral obligation to repay it but, yeah, if it were me, i would probably think twice about repaying it if i know in a year it's going to go off my credit report rating or if there's no legal recourse because it's an out -- beyond the statute of limitations. the other thing i would just say is i would want to make sure the person on the other end of the phone actually owns the debt. the problem is there's not an easy way to figure that out. but you could get the name of the company, they can them out -- check them out on the better business bureau web site and get a sense for whether there is a reputable company or

not. >> host: you actually were on a call as part of your research for this book. you were actually in one of these collection centers, and you got on the phone the sort of feel like what it was to be a debt collector and have that conversation with the person on the other end of the phone. what was that like? >> guest: yeah. so i was at brandon wilson's collection agencies, and we were up in bangor, maine, and i was just observing. he said to me, look, you've got to get on the phone. you can observe all you wallet, but you're not going to understand what this job's like, and i was kind of reluctant, one of which was i just didn't want to hound people. but the other collectors started haranguing me and saying you've got to try this. all right. they gave me a headset, and they had hit on autodialer so that debtors whose contact information had been verify bed would just route to me. -- verified would just route to me. the first call was a woman who owed, i think, like $450 on her cell phone bill.

and i said something like, ma'am, i see you owe this $900 now with interest, but we can give you a reduced rate, would you consider paying this, and i heard myself saying it and i thought, i wouldn't pay me. that's such a weak opening gambit. and eventually we're talking, and i'm trying to -- brandon's whole thing is he's got to marry the debtor, i have to have such empathy that, you know, what's going with you in your life, are you working and that we'll have some sort of connection that she'll feel like she can, you know, open up and trust me. and i'm trying to do this, and at one point she says, well, maybe i could write you a check, but i don't, like, seize on that right away because i'm trying to marry her. and then she hangs up. and brandon is right behind me kind of playing, you know, coach. and he's like, look, you failed at this not because you didn't collect, you failed on her because at the moment she offered to make that check, you should have said, okay, i'm

going to -- so you're going to send many that check? yes. and you're going to send it the middle of the month? yes. because in brandon's psychology the minute that she promised to make that payment, we had kind of gotten her because she'd committed to this. and now we could use that the next time we called her. anyway, so there's a few calls like that. i was a very bad collector, but what i realized at the end was i can afford to be a bad collector. i'm married to a doctor. i make a decent living as a writer. but if i were desperate like some of these collectors, i would have gotten wise quick to what i had to say and do to make folks pay. >> host: because they are desperate. they are like sharks, i mean, that's basically what you've depicted here in a very clear manner. >> guest: yeah. there's some collectors who work more at these white glove customer service type places, but a lot of collectors are pretty desperate. i was at one agency at the end

of the week one guy made $115, and another guy made $85. and that's poor. yeah. >> on the go? at after words" is racial via podcast concern available via podcast. click podcast on the upper left side of the page. select which podcast you'd like to download and listen to "after words" while you travel. >> host: so, jake, you talk about this underworld in buffalo and going up to bangor, maine, and dealing with that sort of set of characters. then you also talk about another pillar of this debt collection world which is las vegas. , and you went there to do information there and -- investigation there and discover new things there.

what was that like? >> guest: right. so i wanted to see how brandon wilson was buying this debt. and if you remember, brandon is the former armed robber who works for aaron and is finding these deals on paper. and those deals are key to making the profit margin. so in the course of talking to brandon about where he, you know, hunted or searched for paper, he said las vegas. every february there's a big debt buyers' convention, and i go out there and hunt for deals. so i asked him, can i tag along? he said, sure. so in february 201 i flew out to vegas and spent several days with brandon as he was on the prowl for these deals. he wanted to get a few called these buckets of debt that he could then bring home with him either to work at his own collection agency or he could then flip and sell to other folks. and it was interesting because when we arrived there that year, the market for debt was changing for two reasons. one was the regulators were

finally starting to crack down a little bit, and that was making some of the banks nervous about who was getting ahold of their debt. the other thing is that during the credit boom of the 2000s, credit was just -- everyone was getting a loan. and now all of a sudden after the recession, people are becoming much, creditors are becoming more careful about who they issue credit to which means the cost of buying these bad accounts that no one will collect on goes up. so all this meant that brandon had to work that much harder to find these deals. and when he was there, he was hunting for this paper that he called the ringcom paper. do you want me to tell you about that? >> >> host: yeah, that's a really interesting story. >> guest: okay. so when he gets there, the word on the street is there's a parcel of debt that everyone is calling the ringcom paper that the federal trade commission actually shut down because they were doing all kinds of illegal

stuff in terms of collecting and threatening and abusing debtors. and after they shut down this agency, its assets went into a court-appointed receiver. the court kind of -- the same way that you would seize like a drug dealer's car and auction it off to raise revenue, the same thing happened. but the assets this ringcom company had were largely their paper, the debt they'll collecting on. -- they were collecting on. so now they were auctioning off this paper, and everybody was trying to figure out how much is this worth, it's a big piece of debt. so brandon's doing his intelligence, talking to folks, what do you know? any good? how much would you pay for it? one penny on the dollar, a tenth of a opinionny on the dollar, that kind of thing. and i'm with him one day when he meets this woman who is another debt broker, and she -- and brandon wanted to talk to her because she used to sell debt to

ringcon, and she was intimately familiar with the workings of the company, and she said don't buy it. and ban con says -- brandon says i had a bad feeling about it, but why are you saying i shouldn't buy it? well, i have relegal information from the people that some of that debt was stolen after the offices were shut down, and what's more, that some of the chains of title proving kind of legitimate ownership of this debt is not there. and i have this information, she claimed, directly from people inside ringcon. and if you buy that debt, you're going to be in a world of trouble because particularly if it was stolen, that means someone else could be working the same paper that you own. so i eventually called up someone at the federal trade commission and said is it possible some of this paper was stolen after the offices were shut down. and they basically said to me, i can't tell you for 100% certainty that some employee doesn't walk out the door with some of that paper before we shut that down. so i went and did a little more

digging and lookeat the terms of sale that the court was saying if you want to buy this paper, this is the contract you have to agree to. and the contract said in pretty clear language we are making no warrantees or guarantees about the accuracy or the v.a. lilledty of -- validity of this paper that's being sold. so basically to sum this up, you have a federal regulatory agency shutting down a bad actor, handing over its assets to a court-appointed receiver, and then there's an auction, and they're selling off that paper. and there's reason to believe that at least possibly they're selling paper that's been stolen. and it was kind of mind-boggling, you know, these are people that are meant to be cracking down and solving problems might inadvertently be creating problems, and in the end brandon decides he just doesn't want to make a bid on this ringcon paper that's being

controlled by this court-appointed receiver. >> host: i find that, again, horrifying that the ftc is closing down a shop, taking that paper -- >> guest: up. >> host: -- not doing anything with respect to, i imagine, the debtors involved on the other side a of that paper because they don't know what's been shut and moved, going to somewhere else. and they could conceivably whether it's for that paper or other paper be getting calls from collection agencies that bought it, stole it, whatever that they've never heard of that they never had a transaction with. you mention, for example, chase and washington mutual as two banks that at the top of a food chain sort of -- >> guest: right. >> host: had papers. but at some point chase stops selling -- >> guest: correct. >> host: -- its debt because of willinglations that have come into -- regulations that have come into effect after the financial crisis and with the dodd frank act. >> guest: correct.

>> host: how did that impact, why did they do it? >> were there other motives, lawsuits they could have been dealing with, and also how did that impact this whole chain of other characters that were involved in debt collection? >> guest: right. so the title of the book is "bad paper," and that's just paper there's problems with that, therefore, makes it hard to collect. and there's a lot of bad paper out there because basically what these big creditors like, you know, washington mutual, now chase or bank of america, whatever, for years have just sold these spread sheets out with -- and in not a particularly careful or organized way to debt buyers. and the contracts that these banks create when they sell it to the debt buyers clearly had these craze she e warranties that say we're making no guarantee about the accuracy of this information. and there's problems with it. there's all kinds of problems with it. and i saw that firsthand with the people connected to the package that i looked at in the book. just to give you one quick example, there was a woman who

was connected to this package whose debt after going through the whole circus of what happened in buffalo ends up in the courts down in georgia. and she's getting -- it appears on her credit report, and she's in danger of being sued over it. and i meet with this woman, and i say, okay, what's the story with debt? she says i was hoping you could tell me. i don't recognize this washington mutual tet that i supposedly -- debt that i supposedly owe. so i said, okay, there's got to be an easy solution here. let's call chase bank which now bought washington mutual, and we'll just ask them directly what's going on with this amount and this debt that you don't recognize. so i call up the spokesman for chase, and i say i have this woman right here, her name is julie, she has this on her credit report, but she doesn't recognize the debt, the amount, anything like that, can you help us clarify? because when this was sold off, it appears maybe it was done in a kind of -- there were mistakes. the guy from chase calls me back and says, jake, we've decided

we're just going to write off julie's debt as fraud. and i said, well, why? he said, well, we don't have any of the underlying documentation that would give us confidence that this is, in fact, a valid and accurate debt. they had some statements, but they didn't have the original signed contract or proof of who was paying the debt. i said, what do you mean you don't have it? you're the bank, shouldn't you have it? is he said, well, when chase acquired washington mutual it was a very rapid process, and information was lost. now, when chase acquired washington mutual, that is one of the largest financial acquisitions in recent history, and they're basically saying, you know what? we don't have this paperwork. so the mistakes that are being made that makes this paper bad aren't just happening at the very bottom of the debt food chain where you have street hustlers in buffalo. there's reason to believe it's happening at the very highest levels of finance, and our assumption or my assumption going into this that, oh, banks

are not going to be making mistakes like this is not necessarily a safe assumption to make. >> host: you're actually coming at this entire story, which is one of the reasons i think it's, the writing is just so clear, you're coming at it not from a sort of financial component, but really from the ground up, from this underworld you talk about and from the individual's role in all of this and how people are impacted. the stories that surrounded the washington mutual/chase merger and everything that was happening during the financial crisis of 2008 had come into focus as being about this sort of thing happening mostly with mortgages. >> guest: uh-huh, that's right. >> host: with attachments to mortgage loans being lost, with robo signing and all sorts of those kinds of things. you actually bring up that this is going on and had been going on, it has been going on not just in mortgages, but throughout this entire credit spectrum with credit cards and other types finish. >> guest: right.

>> host: -- of debt as well. >> guest: that's right. i mean, i think at this point people know that there is a lot of funny business going on with the way that mortgages were issued, the way they were bought and sold, the way the houses were foreclosed upon. it's been in the press. i think there's a lot less attention to this idea of consumer debt whether it's credit card debt or payday loans. but they're the same sorts of problems. and where you see this in some ways most strikingly is when we get to the courts which is where we get towards the end of the book. so, basically, all those folks that are calling, the debt collectors that are calling saying you've got to pay this, they're basically relying on the talkoff to convince you to pay. but if they can't do that, often it ends up in the hands of lawyers who then sue on that debt, and this is where it goes to court, and many of the same issues they've had with robo signing, with mortgages, they're having similar issues in court with credit cards. because, basically, the lawyers that are suing on this debt, the evidence they have is fairly

thin. it's these excel spread sheets. and there's problems with the excel spread sheets. and -- but what happens is there's a 90% no-show rate with consumers in court. so if you think about it here just to make it, like, simple, i'm a guy, jake, i can't pay my credit card. a whole bunch of debt collectors call me up, i still can't pay it. well, eventually they bring in the lawyers, and the lawyers sue me for this amount. and now, most likely, what they're saying i'll owe is much higher than the original principal balance, might be three times higher because of the high interest rates. so if i go to court, i can challenge that and say where did you get this number, do you have proof this is really my debt or what's the breakdown of interest and principal? but 90% of americans don't show up in court. they either don't understand what it means not to show up there, or they feel there's no point. and what happens is these numbers on the excel spread sheet that are highly suspect to

begin with then get stamped by the court, and it becomes a judgment against you. and then your creditor can now garnish your wages. they don't have call you up, they can go right at your bank account and clean it out, they can get your monthly work check, and this is happening. 10% of americans between 35-45 are having their wages garnished every week. so that's what's happening, yeah. >> host: that's asson bishing. so you've -- astonishing. you've basically given in this book, in this interview, if "bad paper," two very important pieces of advice for consumers who are involved in this debt collection process. one, if someone calls about a debt that's over a certain period of time you should be very suspect about that call and likely ignore it. and also as you're mentioning now, you should show up in court if you get summoned because you have a much better chance of

righting whatever wrong you've within involved in than if you simply don't show up and it goes against you. >> guest: that's totally true. >> host: that in itself is a justice you have provided through "bad paper," i think, to the entire american public, so thank you for that. >> guest: yeah. [laughter] >> host: on behalf of the american public. you were in court in savannah, georgia, and the kind of history that georgia has in the debtors prison, the debtors idea of reinstitution -- >> guest: right. >> host: -- you actually stood by some of these people. >> guest: yeah, it's interesting. so the history was that, you know, originally georgia was conceived as a kind of utopia that would rehabilitate debtors. they would come from the debtors' prisons in england and come to the new world and get a fresh start and get out of the chains of debt and rebuild their lives. it was this upbeat, optimistic view of reinvention kind of

getting -- but the irony is that that's really not the case in america these days. i mean, we hear a lot about how americans can declare bankruptcy and get out of their debts, but there's lots of people who are just, have horrible credit ratings, therefore, pay higher rates on all kinds of loans they take out. they're having their wages garnished, their checking accounts cleared out. it's quite a contrast to this utopian vision that originally founded the state of georgia. and then the other part of your question which is about, you know, going to court, and there is a fairly funny thing that happened to me which was that i wanted to actually see what this process was like. so i followed the package of debt that i follow in the book, and i went to one of the courthouses where some of the debtors connected to this package had been through. and i just showed up just to kind of get a sense of it. so i'm waiting outside the courtroom, and i start talking with this couple who's being sued over credit card debt, and they don't recognize the people

that claim to own the debt, the creditor's name doesn't ring a bell for them, and the amount doesn't make sense to them, and there's no documentation about the breakdown of that amount. we're trying to figure it out, and this guy calls out their name. a young lawyer -- this is outside the courtroom. they walk over there, and he says to them i represent the people that own your debt. let's just settle, this, basically, right now. we can work out an agreement, we don't need to go before the judge. and they start -- he then reaches into his briefcase and pulls out this document that looks almost like a credit card statement, but kind of like a mock-up of a credit card statement. all it has is the amount they owe, their name, their address and at the top in bold print it says this is not an actual credit card statement, okay? so they're kind of looking at this, and they start talking to this lawyer, and at some point along the way i pipe up and i say do you have any documentation to prove that you do, in fact, own this debt or in

any further information that gives a breakdown of the debt? and he says to me, are you a lawyer? i said, no, i'm just writing a book. he said, well, you can't represent them. and, in fact, as this escalates, he says i'm going to take you in front of the judge. so i return to the courtroom with this couple, and the woman who actually is on the hook for the debt, the judge calls her up, and then the judge calls me up as well. and we get sworn in together kind of like we're co-defendants in this, and i'm -- [laughter] it was like a kafka novel or something. so i'm sworn in, and the lawyer who's suing on this debt proceeds with his opening arguments and says mr. halpern is, appears to be practicing law without a license and, your honor, could you please tell him he could face criminal sanctions for doing this? and i say, like, your honor, i just asked a question. i'm trying to figure out the process with these folks that i met about 15 minutes ago. so this goes on back and forth for a little bit, and finally the judge says to this lawyer,

what do you want to do about the matter of this debt that this woman owes? and he says let me consult with my client. he comes back and says, your honor, we're going to drop the case. so at this point me and the debtor are looking at each other like what just happened, and we're kind of scratching our heads. we walk out into the hallway and there's a guy from legal services who says, i'll tell you what just happened, you said the magic words, and the magic words are prove your case. in other words, this couple -- simply by showing up in court and pressing back just a little bit asking for the barest, thinnest amount of evidence of legitimacy of this debt and the detailed information of this debt -- was enough to make the person suing on it back off and the whole thing kind of just crumble. and the whole book i'd been chasing this package of debt, this excel spread sheet through the streets of buffalo e and then i'm down in georgia, and the moment it comes under a

least bit of scrutiny, it vanishes into nothing. >> host: that's amazing. [laughter] now, you mentioned earlier that the whole chasing of paper and the whole jealousness of the debt can collection business got to a large or height during the great recession after the financial crisis because people just simply had less money to pay, and they had more debts they had accumulated. and you talk about the term "the shadow economy." >> guest: right. >> host: for those people. which i find interesting because we use the term shadow banking, usually it's about hedge funds, cayman island tax shelter type things. the shadow economy is something different, and it's something that you discuss with respect to the people on the bottom of this. and i want to know if you can talk about where you think those people and how that's going to evolve going forward from where we are now. >> guest: right. so this happened -- the way that i kind of stumbled into this is when i was down in georgia

looking at the lives of these debtors who basically were being sued in court over this debt, i wanted to get a sense for what their lives were like. and one of them told me that she bought her car from a special car dealership that offered, that catered almost exclusively to people with bad credit. so i went out to this dealership, and what became clear was is that they were paying an enormous premium for their bad credit. in the words of this car deal kerr, their money was worth about 70 cents on the dollar, and a car that should have cost $9,000 was going to cost $13,000. and, in fact, another debtor who i followed, he actually had his bank account cleaned out. he was one of these guys that there was a judgment imposed against him, they found him, and they cleaned out every cent that he had in his savings account which was then going to cause him to default on his car payment which then compromised

his ability to get to work. and his particular situation is he had a device, a gps kind of device on the engine of his car, so the moment he went into default on this car loan which he was paying this premium on, boom, the engine would shut off, and the car would be stuck on the side of the road. so this is the world that people inhabit who have really bad credit. and i went and stayed at -- i visited this housing complex where it was basically all people who had very bad credit and, yeah, they live in this world where they are paying the highest possible rates of interest, and there's basically no, no trust. creditors don't trust that they're going to pay the bills, so they get kind of stuck with this. and on the one hand you can kind of understand it from the creditors' perspective, these are very risky investments. but it's also hard to see people who are so poor having much of their income devoured by interest, and they're the ones that are getting kind of the

most gouged by this. >> host: when you talk to the ftc or the consumer protection board, have you gotten a sense that this is an issue whatsoever at all that they're trying to do something about? helping -- >> guest: yeah. >> host: -- other people on this side of the circuit and also just generally, you know, the fact that there are such heinous interest rates, usury loans on credit cards that continue to get imposed on the people who have the least ability to pay. i think you mentioned one instance which is very logical where one of the people in your book says, you know, if i hadn't been hit with the extra charge, the extra rate -- >> guest: that's right. >> host: -- i would have been able to negotiate this. it wouldn't have been this underworld financial stuff. do you sense any understanding of trying to get to the root of this matter at the washington level? >> guest: yeah. i think the creation of the consumer financial protection bureau which was the kind of

brain child of now-senator elizabeth warren was a good move, and they are starting to make a difference in this space. and they're going to have new rules coming out in about a year that will effect debt collections, and they've been aggressive. it isn't -- if i were in charge, i would give them more funding. a lot of this is going to come down to how much resources do they have to kind of go after the bad actors. so the consumer financial protection bureau might have a of, i don't know, between $400 $400-$500 million, but if you look at the amount of money jpmorgan chase set aside for litigation reserves in 2013, basically the amount of money they put aside to defend themselves, the cfpb's budget is 2% of that. >> host: wow. >> guest: so you get the sense that they're doing good work, but they're kind of outgunned here. and i think that, you know, hopefully if anything comes of

the book, i mean, i hope it's a call to arms to kind of give them a shot in the arm. another thing, i was on the phone the other day with someone from the justice department. they had this initiative called operation choke point, and the idea behind this is it's hard to go after the payday lenders that do the worst stuff. so what the justice department has started to do is go after the payment processers. so if i'm a payday collection agency and i'm doing bad stuff, i still have to rely on a payment processer to take your debit card information and take the money, and the justice department has started to say, hey, payment processers, if you are dealing with these unscrupulous payday lenders, we're going to go after you. and there's been pushback about that because there is a strong payday loan lobbying presence that is pushing back against this. but i think that you need initiatives like that, and, you know, on a larger scale if

you're going to see the kind of change that needs to happen to clean up the industry. >> host: yeah. and hopefully, yes, in reading your book that chain is el human nateed so well, and -- illuminated so well, and hopefully that can be a catalyst to look at these sorts of things. the end of your book and i guess towards the end of how many years of research? >> guest: in one fashion or another, i'd say it's been about four years. >> host: so at the end of that time, you go back to because bu, you kind of do an

>> guest: he retired the debt. he kind of, he didn't sell it, he put it in a rest in peace in theory. and yet someone was collecting on this debt still. so i called the agency. i wrote them a letter, actually,ing that had contacted teresa, and i said i'm calling about this woman, what is your claim to ownership of this debt? i didn't think i'd hear from anyone, and i thought if i did, i'd hear from someone in like

some, you know, chop shop in, you know, buffalo or something. turns out i talked to a guy, the owner lives in beverly hills. and he's doing very well for himself. and when i ask him about this, he kind of says, let me look into this. oh, yeah. this debt belongs to our portfolio of debt that i purchased from the debt broker in florida that was double sold, and a lot of the numbers have been manipulated. all these problems with it. and he -- but his attitude was not shock, but kind of like, this is par for the course in this business. hey, you're just purchasing data, and you never know what you're purchasing. and it was just this kind of chilling end to the whole thing. because, of course, you're not just purchasing data, you're purchasing the right to collect on people's debts in a profound effect on their lives. whoever stole it from aaron must have sold it to someone else as

well, and to this day teresa's debt is just floating around there in cyberspace, and someone else will buy it and try to collect on it. and somehow that more than anything else just kind of seemed to speak to the chaos and the dysfunctionalty of this industry. >> host: yeah. so if you had to give one message to consumers and to regulators to fix this, what is, what is the takeaway? >> guest: i think that the consumers, you have to be skeptical of who's calling you on the phone, and you can't assume blindly that they have a legitimate claim to this debt or the amount they're asking for is, in fact, accurate, and you have to make sure there's still a legal obligation to pay this debt, and you have to kind of -- the equivalent of driving defensively with your financial reaction to these calls. on the larger level, there's a few things that need to happen. one is that there needs to be better enforcement, more

resources for places like the consumer financial protection bureau. two is the banks have to be more careful about what they pass along and make sure that information is correct and there's all the documentation there's supposed to be. and, three, i think there needs to be a change in the way this court system works because the 90% no show rate and all these default judgments is creating these garnishments and all kinds of problems. so there's a fair amount that needs to be done. >> host: well, i want to thank you for coming here today, for writing this book and for bringing this information, these stories of these individuals and what happens to the people on all sides of this debt collection chain and what they can do and what should be done at the higher levels of the country on a regulatory basis. i congratulate you for writing it. i loved reading i. i read this in a very quick setting, i couldn't really stop reading it. and so thank you for being on here, thank you for writing the book, and the best of luck with it. >> guest: thanks so much.